How best to increase unemployment? Introduce a National Minimum Wage
Johannesburg
The expert advisory committee has proposed a national minimum wage of R3,500 to combat South Africa’s high levels of poverty and inequality. If the goal is truly to reduce poverty and inequality, then do not expect to see much improvement. In fact, given the high and rising rate of unemployment, inequality and poverty are more likely to worsen.
Interestingly, the proposal makes special exemptions for agriculture and domestic workers because the evidence shows that increased wages in these sectors impact negatively on employment. If these sectors obey the law of demand (as the price of a good or service increases, the demand for the good or service will decrease and vice versa), why does the committee think all of the other sectors in the economy will not suffer the same outcome?
The introduction of a national minimum wage is one of the surest ways to prevent unskilled people with little or no work experience from ever entering the job market. South Africa has one of the highest and most enduring unemployment rates in the world. Statistics SA’s quarterly labour force survey reveals alarming labour market trends. The unemployment rate increased from 25% (5.23million) in the second quarter of 2015 to 26.6% (5.634million) in the second quarter of 2016, a loss of more than 400,000 jobs according to the strict definition.
A more realistic representation of what is happening is the expanded definition of unemployment, which includes so-called discouraged work-seekers and demonstrates that more than 500,000 jobs were lost over the course of the year. This puts the unemployment rate at 36.4% (8.880million unemployed people). Of the unemployed, more than two thirds (66.9%) have been out of a job for longer than a year and a staggering 66.3% are between the ages of 15 and 24 years.